Spending wisely is as important as spending big

SINGULAR VISION BY TEOH KOK LIN

WHILE we continue to applaud many governments today for their decisiveness in coming out with fast and aggressive stimulus programmes, we now ponder on how accurately and effectively the stimulus money can be spent and if the ends justify the means.

In terms of fast and aggressive stimulus, China led the way in November with a 4 trillion renmimbi (US$586bil) stimulus package or equivalent to 16% of its gross domestic product (GDP).

We are now witnessing many countries stepping up the size and speed of fiscal stimulus, such as Singapore (S$20bil or 8% of GDP) and the US (US$789bil or about 6% of GDP), even as many more economies begin to sputter from the devastating effects of the global economic crisis.

Some countries that had smaller stimulus packages last year are now coming up with second larger packages. For example, Australia’s second stimulus package of A$42bil is about 3.5% of its GDP compared with the A$10bil stimulus in October. Malaysia, China and several other countries are also likely to add to their existing stimulus packages.

The speed and size of a fiscal stimulus is perhaps being adequate addressed, at least for the moment.

Economists tell us that it is important the stimulus money be spent on timely and temporary ways for the stimulus to work. However, we strongly believe it is equally important that they are spent on ways that promote and enhance long-term competitiveness of a country and its citizens.

A smart fiscal stimulus should encompass long-term economic plans and forward thinking. Progressive governments should take this opportunity to identify their competitive strength for the next 20 years and then enhance or retool their economic “hardware” and “software,” to prepare for what is likely to emerge as a vastly different global economic landscape of the future.

In the retooling of the many economic “hardware,” examples are:

·A country may upgrade key economic gateways and infrastructure like public transportation in major cities, ports and railways. These are strategic assets that will create a meaningful productivity boost when economic activity recovers. However, different countries have different infrastructure needs; new roads may be good for linking a developing country but it may be “wasteful” to build a “road to nowhere” such as what Japan did with some of its stimulus spending in the 1990s.

·A nation can focus on cleaner and more efficient power plants in the same way that China is shutting down coal-fired plants, replacing them with more efficient, cleaner alternative power plants such as hydroelectric or gas plants.

Malaysia, for example, may strengthen the “hardware” of its important plantation sector with incentives for replanting higher yield seedlings, modernising to environmentally cleaner and efficient mills and branding various plantation products for positive global recognition

In the enhancement of economic “software,” governments may address a multitude of issues such as:

·Human resources training: Governments may provide incentives where employed and unemployed workers can upgrade skills and qualifications on very attractive terms. There is clearly a need for a skilled workforce in any economy for it to compete effectively in a globalise world.

Singapore’s fiscal stimulus, for example, contains a S$500mil “skills programme for upgrading and resilience” to help companies retrain workers, save jobs and cut companies’ retraining costs.

A country like Malaysia may improve language skills in English, Chinese or Tamil for the hospitality sector and colleges to attract foreign tourists and students.

·Promote environmentally-friendly activities: As environment degradation is becoming a real and increasing cost to many economies, governments should spend more to promote and improve environmental outcomes. As an example, Australia’s latest fiscal stimulus contains A$3.9bil to install free ceiling insulation in 2.7 million homes. The overall project is expected to reduce greenhouse gas emissions by 2020 by the equivalent of taking one million cars off the road.

·Revamp rules and regulations: For many trading nations, global trend in international trade and attracting foreign investments demand rules and regulations that are progressive. Demands may include regulations to ensure markets are open for fair competition, corporations are subject to equitable ownership, progressive policies that promote meritocracy and so on. Malaysia, for example, may enhance immigration regulations and governments’ transparency to attract foreign investors and talents,

In the present global economic crisis, there are pressing needs for governments to spend massively to counter a deepening recession. We believe policy makers should also take this opportunity to strategically reposition a country’s economy to be globally competitive in the new economic landscape to come.

Smart fiscal stimulus spending not only will translate to an improvement in a nation’s relative economic position but will also improve the well-being of its citizens, society and environment of the future, which in my opinion will then be money well spent.